Textbooks

Pearson $3.2 Billion in the Hole, Looks to Digital Transformation

• By Sri Ravipati
• 02/27/17

With higher education transitioning to digital courseware and textbook sales in decline, Pearson Education has been facing some serious financial struggles. The company last month issued a profit warning announcing it would not reach its goals for 2018, prompting plans to sell major assets. Now, according to its 2016 earnings report released Friday, the British-owned publishing company has reported a pre-tax loss of nearly £2.6 billion ($3.2 billion) — the biggest loss in its almost 30-year history.

The company’s United States business accounts for two-thirds of its revenue and profits, and that segment has been taking a massive hit with students opting to rent textbooks instead of buying them. According to the earnings report, net revenues declined an unprecedented 18 percent during the year. Total college enrollments for courseware dropped 1.4 percent, with combined two-year and four-year for-profit enrollments falling 5 percent.

As a result, Pearson plans to continue to reshape its portfolio and capital structure, with plans to sell its 47 percent stake in the world’s largest publisher, Penguin Random House, “to maintain a strong balance sheet,” last month’s notice stated. Additionally, Pearson will continue to shift away from “large scale direct delivery services and focus more on scalable online, virtual and blended services.” For instance, the company is exploring a potential partnership with Wall Street English, which has a strong reputation in China.

Pearson will also accelerate its digital transformation in higher education. The earnings report stated that digital and services revenue now make up 68 percent of the company’s total revenue. It outlined plans to speed up its “shift to digital and maximize the value of stand-alone text offerings.” It will accomplish this through the following:

• An additional £50 million investment ($62.2 million) to simplify its product technology platform and enhance its courseware service capabilities — accelerating its product roadmap by two years and driving faster adoption of institution-wide Digital Direct Access for Pearson courseware; and
• Reducing e-book rental prices for 2,000 titles and piloting its own print rental program for 50 titles.

“2016 was a challenging year for Pearson, but we remain the global leader in education, with a strong market position,” CEO John Fallon commented in the earnings report. “Our priorities for 2017 are clear. We will continue to accelerate our digital transformation, simplify our portfolio, control our costs and focus our investment on the biggest growth opportunities in education.”

The 2016 earnings report is available here.